In Clayton v. Canada (Attorney General) , the Ontario Court of Appeal (the "OCA") dismissed an attempt to set aside an arbitral award on grounds of jurisdiction and public policy. The OCA confirmed that the grounds for setting aside an arbitral award are limited.
Context
The appellants wanted to operate a quarry in Nova Scotia and needed approval from the provincial and federal environment ministers. A joint review panelestablished by the provincial and federal governments conducted an environmental assessment and recommended that the project not be approved because of the negative impact it would have on the community's core values. The federal and provincial ministers therefore refused to approve the project.
The Appellants commenced arbitration proceedings under the North American Free Trade Agreement (NAFTA). In the first phase of the proceedings, the arbitral tribunal found that Canada had breached its obligations under NAFTA by conducting an environmental assessment that was flawed. In the second phase, for damages, the Appellants claimed US$440 million for the profits they claimed would have made if the project had been allowed to proceed. The arbitral tribunal found that the Appellants had failed to establish a causal link between the breach of NAFTA and the alleged harm. They failed to prove that, had the breach not been carried out, they would have received approval to operate the quarry. The arbitral tribunal instead awarded them US$7 million in damages for not having received a fair and non-arbitrary environmental assessment.
Request for cancellation
The appellants asked the Ontario Superior Court of Justice to set aside this judgmentawarding such damages under Article 34 of the Commercial Arbitration Code , Schedule I to the Commercial Arbitration Act (Canada), RSC 1985, c. 17 (2nd Supp .) (the "Code"). The Code is based on the UNCITRAL Model Law. The appellants argued, among other things, that the arbitral tribunal exceeded its jurisdiction by failing to apply the standard of proof applicable under international law appropriately, and that the award was contrary to the public policy of Canada.
The trial judge dismissed the application, holding that there was no genuine issue of jurisdiction and that there were insufficient public policy concerns. The appellants appealed this decision to the CAO.
CAO Decision
The CAO first confirmed that there is no right of appeal from an arbitral award. The only possible remedy is to apply to have the award set aside under section 34 of the Code. This provision provides very limited grounds for possible court intervention. The arguments that may be raised relate in particular to subparagraph 34(2)(a)(iii) of the Code, which provides that a court of lawmay set aside an arbitral award if the claimant establishes that the arbitrator decided issues beyond those submitted to arbitration, and subparagraph 34(2)(b)(ii), which provides that an award may be set aside if it is contrary to the public policy of Canada.
According to the CAO, the appellants' first argument amounts to saying that a misapplication of the law, that is, an error within the jurisdiction of the arbitral tribunal, can be so significant that it constitutes a failure to apply the law and causes the arbitral tribunal to exceed its jurisdiction. The CAO rejected this argument, holding that, if accepted, it could lead to courts routinely deciding the merits of arbitral awards. It concluded, after an objective review of the arbitral award, that the arbitral tribunal did what it was asked to do, namely, to determine the amount of damages by applying the legal standard applicable under international law.
The OCA then turned to the public policy argument, which it said was a simple restatement of the jurisdictional error argument, as follows: the arbitral tribunal failed to exercise its powers judicially, ignored expert evidence, and required the appellants to prove that consequences other than approval of the quarry were impossible. It rejected this argument as well, noting that the power to set aside an arbitral award on public policy grounds is narrow and exceptional, not a means of indirectly obtaining reasonableness review of an award. The OCA concluded that there was nothing in this case that offended the Canadian values in the slightest. The appellants had failed to establish that they were entitled to the damages they sought, and it was for the arbitral tribunal to make that determination.
Key points
As the CAO has stated, respect for the process of resolving disputes through final and binding arbitration is consistent with public policy in Canada, as is the principle of judicial reserve. Courts are mindful that the possibility of setting aside an arbitral award is slim and are wary of parties attempting to use the setting aside provisions of the UNCITRAL Model Law to appeal an arbitral award. Parties seeking to set aside an arbitral award should carefully assess the grounds available to them and avoid converting an application for setting aside into a review on the merits or an appeal of an award.
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